Summary Selected issues: financial and economic crime (15/20)
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Course
Selected issues: financial and economic crime
Institution
Universiteit Gent (UGent)
Comprehensive summary of the financial and economic crime elective course. In grey, there are always your own additions from the lesson. For the guest lectures of the prosecutor & the Belgian dentist, I use the slides, so these are not in the summary.
Gain a deeper understanding of a specific type of crime, namely financial-economic crime, from
different points of view (cf. course description).
1. Applying the knowledge of actors of European/international institutional and policy
development context of criminology and criminal justice when addressing the financial and
economic crime and reactions thereto
2. Applying the in-depth knowledge of specific phenomena of economic and financial crime (and
reactions thereto) in the scientific research
3. Addressing financial and economic crime multidimensionally
4. Having knowledge of current debates and issues regarding financial and economic crime (and
reactions thereto)
5. Critically analyzing financial and economic crime (and reactions thereto) through research and
the application of theory
6. Articulating a scientifically-reasoned, substantiated opinion about financial and economic crime
(and reactions thereto) that pays attention to the ethical, cultural and legal issues
7. Ability to think independently and critically about the social reaction (incl. policy) to the
phenomenon of financial and economic crime
8. Demonstrating an active attitude towards current events
9. Writing a clear report on the results of (own) scientific research and/or personal views
10. Presenting personal views and/or results of (own) research, adapted to the target audience
11. Respecting cultural differences, pluralism and ethical standards
12. Have a critical and academic attitude towards relevant sources and literature concerning
financial and economic crime and use these sources and literature critically.
1
,Inhoud
Module 1: What is financial economic crime? ........................................................................................ 6
1.1 Objectives of this lecture......................................................................................................... 6
1.2 Introduction ............................................................................................................................. 6
1.3 Definition ................................................................................................................................. 7
1.3.1 Categorisation Offender (!!) ................................................................................................... 9
1.3.2 Organised vs. Organisational crime ............................................................................... 11
1.3.3 Categorisation type crime ............................................................................................. 12
1.4 Measuring financial economic crime .................................................................................... 12
1.5 Offenders & Victims .............................................................................................................. 14
1.5.1 Offenders .............................................................................................................................. 14
1.5.2 Victims ........................................................................................................................... 18
1.6 Theoretical models to explain financial economic crime ...................................................... 19
1.6.1 Strain Theory – anomie ................................................................................................. 20
1.6.2 Self-control theory......................................................................................................... 20
1.6.3 Rational choise theory ................................................................................................... 20
1.6.4 Integrated theories ........................................................................................................ 21
1.6.5 Greed of fear?................................................................................................................ 21
1.7 Example exam question ........................................................................................................ 21
Module 2: Corporate crime ................................................................................................................... 22
2.1 Objectives of the lecure .............................................................................................................. 22
2.2 Introduction ................................................................................................................................. 22
2.2.1 What are we talking about ................................................................................................... 22
2.2.2 Examples............................................................................................................................... 23
2.3 Defining corporate crime ............................................................................................................ 23
2.4 Academic attention to corporate crime ................................................................................ 25
2.5 Theoretical explanations for corporate crime....................................................................... 26
2.5.1 Behavioural theories ..................................................................................................... 26
2.5.2 Organisational theories ................................................................................................. 27
2.5.3 Integrated theories ........................................................................................................ 27
2.5.4 Conclusion ..................................................................................................................... 32
2.6 Harms of corporate crime – victimization ............................................................................. 32
2.7 Example: the germent industry ............................................................................................. 33
2.8 Example exam questions ....................................................................................................... 34
Module 3: Reactions to financial-economic crime ................................................................................ 35
Objectives .......................................................................................................................................... 35
2
, 3.1 Regulation.................................................................................................................................... 35
3.1.1 Origin of regulation .............................................................................................................. 35
3.1.2 Relevant legislation .............................................................................................................. 41
3.2 Prevention ................................................................................................................................... 41
3.2.1 Internal corporate compliance ............................................................................................. 41
3.3 Detection ..................................................................................................................................... 43
3.3.1 Public police (lang over verteld) ........................................................................................... 43
3.3.2 Inspectorate services ............................................................................................................ 43
3.3.3 Oversight bodies ............................................................................................................ 45
3.3.4 Private sector................................................................................................................. 45
3.3.5 Internal reporting & wistleblowing ............................................................................... 47
3.4 Sanctioning ............................................................................................................................ 50
3.4.1 Target of sanctions ............................................................................................................... 50
3.4.2 Types of sanctions ................................................................................................................ 51
3.5 Possible exam questions ....................................................................................................... 54
Module 4: The informal economy ......................................................................................................... 54
Objectives .......................................................................................................................................... 54
4.1 What is the informal economy? .................................................................................................. 54
4.1.1 Definition ....................................................................................................................... 55
4.1.2 Characteristics informal economy ................................................................................. 56
4.2 Measuring the informal economy ......................................................................................... 57
4.2.1 Methods to estimate the size of the informal economy ............................................... 57
4.2.2 Size and prevalence of the informal economy .............................................................. 58
4.3 Theories to explain the informal economy ................................................................................. 59
4.4 Detecting informal activities ................................................................................................. 60
4.5 Tackling the informal economy ............................................................................................. 60
4.6 Empirical research ................................................................................................................. 61
4.7 Reflections ............................................................................................................................. 61
4.8 Conclusion – points of discussion.......................................................................................... 63
3.9 Example exam questions ............................................................................................................. 64
Module 5: Corruption ............................................................................................................................ 65
5.1 Introduction ................................................................................................................................. 65
5.2 Defining corruption ..................................................................................................................... 65
5.3 Measuring corruption............................................................................................................ 68
5.4 Measuring corruption – TI/Eurobarometer .......................................................................... 68
5.4.1 TI .................................................................................................................................... 68
3
, 5.4.2 Eurobarometer .............................................................................................................. 73
5.5 Anti-corruption policies ......................................................................................................... 77
5.6 Risk of anti-corruption policies.................................................................................................... 84
Module 6: Fraud .................................................................................................................................... 87
Objectives .......................................................................................................................................... 87
6.1 Introduction ........................................................................................................................... 87
6.2 Real estate fraud ................................................................................................................... 88
6.3 Investment fraud ................................................................................................................... 89
6.3.1 Investment fraud – Pyramid construction..................................................................... 90
6.4 Bankruptcy fraud ................................................................................................................... 90
6.5 Bank fraud ............................................................................................................................. 92
6.6 EU-fraud ................................................................................................................................ 93
6.7 Theories to explain fraud (additional info see lecture 3) (!!!!) ............................................. 94
6.8 Prevention of fraud (additional info see lecture 3) ............................................................... 95
6.9 Detection of fraud (additional info see lecture 3) ................................................................. 96
6.10 Example exam questions ....................................................................................................... 97
Module 7: Money Laundering ............................................................................................................... 98
Everest: Stijn De Meulenaer – Department Business Criminal Law .................................................. 98
1. The phenomenon (Stijn De Meulenaer) ................................................................................ 98
2. Preventive aspect/CFI (Kris Meskens) ................................................................................. 104
3. Repressive aspect – money laundering in criminal law (Stijn De Meulenaer) .................... 111
Module 8: environmental crime – waste & pollution as corporate environmental crimes ............... 115
8.1 My past/ongoing research on green crime ............................................................................... 115
8.2 Types of environmental crime............................................................................................. 115
8.3 What a waste ....................................................................................................................... 116
8.4 Waste business is big business ............................................................................................ 116
8.5 Waste trade ......................................................................................................................... 116
8.6 International organizations and waste................................................................................ 117
8.7 (European) legal framework on waste ................................................................................ 117
8.8 Waste crime = ? ................................................................................................................... 117
8.9 Ambiguities of the product and market .............................................................................. 118
8.10 Case 1 – Probo Koala ........................................................................................................... 118
8.10.1 What is traded? ........................................................................................................... 118
8.10.2 What is traded/transported ........................................................................................ 118
8.10.3 Link with the Netherlands ........................................................................................... 120
8.10.4 The journey continues ................................................................................................. 120
4
, 8.10.5 Jeremy Paxham interviews Trafigura Chairman Eric de Tuckheim in BBC Newsnight, 16
august 2007 ................................................................................................................................. 121
8.10.6 Trafigura corporate structure ...................................................................................... 121
..................................................................................................................................................... 121
8.10.7 Probo Koala…Clean up finished? ................................................................................. 122
8.11 Case 2 - the historical PFAS-pollution by DuPont Dordrecht – fragmented regulation and
supervision as an open door to corporate harms ........................................................................... 122
8.11.1 Introduction ................................................................................................................. 122
......................................................................................................................................................... 123
8.11.2 Meanwhile in the Netherlands .................................................................................... 124
8.12 The ‘forever Chemicals’ project (ongoing research) ........................................................... 125
8.12.1 Theory: ‘state-corporate crime’ .................................................................................. 125
8.12.2 Theory: recent finding and recommendations............................................................ 126
8.12.3 Methods ...................................................................................................................... 126
8.12.4 Results ......................................................................................................................... 128
5
,Module 1: What is financial economic crime?
1.1 Objectives of this lecture
- Insights into what financial-economic crime is:
o Definition & typologies
o Being able to classify (recent) cases into the typologies
o Understanding that FEC comes in different types
- Construct a personal point of view on measuring FEC: why and how?
- Understanding the different types of offenders and victims.
- Theories on financial-economic crime:
o View on different theories.
o Critical view on the theories – not one ‘all explaining’ theory
▪ No clear view of theories
▪ Each theory had advantages and disadvantages
o Being able to recognise theories in cases, explain theories and apply theories on cases of
financial-economic crime
▪ For example: dieselgate → what theory would you apply
1.2 Introduction
What do you know about:
3M?
1. Minnesota Mining and Manufacturing Company
2. June 2021 (Antwerp) – poisonous PFOS
o Oosterweelverbinding
3. Parliamentary investigation commission →Financial economic crime
o PFOS is a chemical and 3M is producing chemicals and dump the
chemicals into the ground
o Zwarte pieten → we blame everyone
o Why?
▪ Influenced politicians
▪ If they knew they had toxic ways → get ride of it in a legal way (expensive) → just
dump it and you receive the profit
Panama papers?
4. Fiscal fraud (tax evasion & avoidance)
o Evasion: criminal one
▪ We need to pay taxes but it is our right to pay less taxes
▪ Evasion: not paying taxes or lying about our income is criminal, hiding your money
▪ Avoidance: you pay them, but you pay less → not illegal to try to avoid
5. Investigation commission European level
6. International Consortium of Investigative Journalists
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,7. International tax havens/offshore companies (with help of law firm Mossack Fonseca)
8. A guy received a database and there was a list in it of clients who did everything to avoid paying
taxes in their own country
o Register themselves in countries where you need to pay less taxes
o Some people do not want to contribute to society → they don’t want to pay taxes
▪ Optimise tax administration
▪ A lot of people invested in Panama → 1 girl is the business manager
2. De groene amsterdammer → why drugcriminals have so maney real estate in Dubai
▪ They don’t ask questions there about the origin of the money
3. Jean-Claude Van Damme
▪ Optimizing taxes in Hong Kong
▪ At a personal level he did not earn money → he could get things for free
▪ After Panama-papers they installed UBO
Dieselgate
- Car manufacturers wanted to make green diesel
- VW: intelligent cars
- Measuring emission
- European commission: officially they had a green label but in reality the emission was terrible
- Software that identified this so they could reduce
Lernout & Hauspie (engeneers – voice activation)
- Article that they were frauding and messing with accountancy
- They arranged it that it looked like that they had less costs and more income but in reality they
were on the verge of bancruptcy
- Investors of investment companies putted much money into it because they thought it was a
healthy company
- Problem for all the people who had invested in it (a lot of households never saw there money)
- Convicted for fraud
BNP Paribas → Emission scandals, Volkswagen → made people believe their cars are cleaner, ….
1.3 Definition
Definition financial and economic crime (Verhage, 2014)? (x vanbuiten)
- Economic crime
1. “the intentional use of deceit to deprive another of money, property, or a legal right” (PWC,
2016)
2. “crime undertaken for economic gain” (Hoffman, 2003, 255)
- Financial crime
o “crime against property, involving the unlawful conversion of property belonging to
another to one’s own personal use and benefit” (Gottschalk, 2010, 441)
o “the use of deception for illegal gain, normally involving breach of trust, and some
concealment of the true nature of the activities” (Pickett & Pickett, 2002, 3).
- Methods: deception, abuse of trust, concealment & conspiracy
- Goal: financial gain, benefit
- Offender?
In criminological literature, term most used is white collar crime:
- “white collar crimes are crimes committed by a person of respectability and high social status in
the course of his occupation” (Sutherland, 1983, 7).
o Back then it was a mens-world
o Distinction between blue colour crimes and white colour crimes
▪ Blue colour: working class people
▪ Sutherland: specific category of people breaking the law → people with high social
status also commit crimes (offender-based definition)
▪ EUROPOL didn’t look into this type of crime cuz it’s seen as a little cost of great
business (the CEO’s create jobs and are highly respectable)
- 3 components: (1) high status/respectability offender; (2) in course of occupation; (3) violations
of criminal, administrative and civil law
1. Link with type of offender (↔ definitions financial & economic crime): offender-based
definition.
▪ When you start defining financial crime based on who committed it
▪ Other is focussing on criminal activities
▪ In an ideal world, you combine both
2. No explicit link with deception and (financial) gain, but research focuses on breaches of
financial-economic legislation
Criticisms on definition (Ruggiero, 2007; van Onna et al., 2014):
- Too broad
1. Person of respectability… could be everything
2. Narrow it down → what kind of crimes (def criminal activities)
- Social status of offender → offender or offence based approach and definition?
o Does it make sence to look at who does it or looking at what kind of crimes happen
o Fraud: does it matter who commits it?
Importance of Edwin Sutherland’s work for criminology (Geis & Goff, 1983; Hoogenboom, 2012).
- Has opened our eyes for other types of crime
- Back in the days: criminology = breach of criminal law
Offense-based definition white collar crime:
- “an illegal act or series of illegal acts committed by non-physical means and by concealment of
guile to obtain money or property, to avoid the payment or loss of money or property, or to
obtain business or personal advantage” (Edelhertz, 1970 in Benson & Simpson, 2009a,10)
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,- “white collar crime is planned or organized illegal acts of deception or fraud, usually
accomplished during the course of legitimate occupational activity, committed by an individual
or corporate entity” (Albanese, 1995 in Benson & Simpson, 2009a,11)
Criticisms (Benson & Simpson, 2009a):
- Non-physical means → what about crime that causes physical harm (e.g. unsafe working
environments, environmental crime)?
- Research based on offense-based definition in practice often overlooks the crimes of the
powerful (e.g. multinationals, politicians) → but is more criticism on research(ers) than on
definition
So What?
- Financial and economic crime √
- White-collar crime √
- Relation between white collar crime and financial economic crime remains unclear:
1. → Be critical when reading literature!
2. Not a direct link → blind spot?
- Categorisation of financial economic crimes along:
1. Offender → individual or organisation
2. Types of crime
1.3.1 Categorisation Offender (!!)
Difference WHC – OC
- White: legal business, legal products, legal services, legal jobs
o People commit crime in this
o Transport company that bring illegal cigarettes
o Transport company is legal → in order to have more money it once in a while closes an eye
o Transport sector is on a lot of pressure due to dumping
o Commit crimes to save their business
→RESPECTED
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, 1. Organisational crime: company decides to do something that is not illegal for their own benefit
o Mostly corporate: private entity
▪ Benefit corporate itself
o States commit crimes (through officials or businesses)
▪ Do not ably by general legislation of human rights
▪ Government imports stone from country that produces it in violation of the human
rights
o State corporate crime: if it is shown that shell and government knew it is state corporate
crime
▪ Nigerian government is helping shell because shell is paying taxes to Nigerian
government
▪ State and business have same interest and combine sources
2. Occupational crime
o For me, the individual → abuse the job/function for your own benefits
o Using my position in a company to become rich myself
o For example: Madoff
o In the lines of a profession (transfer money from the thrust of his profession to his own
account)
3. Crime outside organisational context
o The police officer who does corruption while he is citizen → when he puts uniform on =
occupation crime
4. Organised crimes: illegal business that provides illegal services and products
o Could be legal goods but served in an illegal way
o Could be illegal goods
→NOT WELL RESPECTED
White collar crime:
- Organisational crime
o Corporate crime (legal private organisation): “offenses committed by corporate officials for
their corporation & the offenses by the corporation itself” (Clinard & Quinney, 1973)
▪ Example?
o State crime (legal public organisation)
▪ Example?
o State-corporate crime: “illegal or socially injurious actions that result from a mutually
reinforcing interaction between (1) policies and/or practices in pursuit of the goals of one
or more institutions of political governance and (2) policies and/or practices in pursuit of
the goals of one or more institutions of economic production and distribution” (Aulette &
Michalowski, 1993, 175)
▪ Example?
o Occupational crime: “offenses committed by individuals for themselves in the course of
their occupation & offenses of employees against their employers” (Clinard & Quinney,
1973)
▪ Example?
o Crime outside organisational & occupational context
▪ Example?
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